ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

This Management's Discussion and Analysis of Financial Condition and Results of
Operations (Management's Discussion) analyzes the financial condition, results
of operations and cash flows of WGL Holdings and its subsidiaries. It also
includes management's analysis of past financial results and potential factors
that may affect future results, potential future risks and approaches that may
be used to manage them. Except where the content clearly indicates otherwise,
"WGL Holdings," "we," "us" or "our" refers to the holding company or the
consolidated entity of WGL Holdings and all of its subsidiaries.

Management's Discussion is divided into the following two major sections:

- WGL Holdings-This section describes the financial condition and results of
operations of WGL Holdings and its subsidiaries on a consolidated basis. It
includes discussions of our regulated operations, including Washington Gas
and Hampshire Gas Company (Hampshire), and our non-utility operations.

- Washington Gas Light Company (Washington Gas)-This section describes the
financial condition and results of operations of Washington Gas, a wholly
owned subsidiary of WGL Holdings, which comprises the majority of the
regulated utility segment.

Both sections of Management's Discussion-WGL Holdings and Washington Gas-are
designed to provide an understanding of our operations and financial performance
and should be read in conjunction with the respective company's financial
statements and the combined Notes to Consolidated Financial Statements in this
quarterly report as well as our combined Annual Report on Form 10-K for WGL
Holdings and Washington Gas for the fiscal year ended September 30, 2012 (2012
Annual Report).

Unless otherwise noted, earnings per share amounts are presented on a diluted
basis, and are based on weighted average common and common equivalent shares
outstanding. Our operations are seasonal and, accordingly, our operating results
for the interim periods presented are not indicative of the results to be
expected for the full fiscal year.

EXECUTIVE OVERVIEW

Introduction

WGL Holdings, through its wholly owned subsidiaries, sells and delivers natural
gas and provides a variety of energy-related products and services to customers
primarily in the District of Columbia and the surrounding metropolitan areas in
Maryland and Virginia.

WGL Holdings has four operating segments:

- regulated utility;

- retail energy-marketing;

- commercial energy systems and

- wholesale energy solutions.

Our core subsidiary, Washington Gas, engages in the delivery and sale of natural
gas that is regulated by regulatory commissions in the District of Columbia,
Maryland and Virginia. Through the wholly owned unregulated subsidiaries of
Washington Gas Resources, we offer energy-related products and services. We
offer competitively priced natural gas, electricity and energy from renewable
sources to customers through WGEServices, our non-utility retail
energy-marketing subsidiary. We offer efficient and sustainable commercial
energy solutions focused on upgrading energy related systems of large government
and commercial facilities as well as own and operate distributed generation
assets such as Solar PV systems through WGESystems. Capitol Energy Ventures
performs natural gas, pipeline and storage asset optimization activities.

Activities and transactions that are not significant enough on a stand-alone
basis to warrant treatment as an operating segment, and that do not fit into one
of our four operating segments, are aggregated as "Other Activities" and are
included as part of non-utility operations. Administrative costs associated with
WGL Holdings and Washington Gas Resources are also included in "Other
activities."

Table of Contents

WGL Holdings, Inc.

Washington Gas Light Company

Part I-Financial Information

Item 2-Management's Discussion and Analysis of

Financial Condition and Results of Operations (continued)

Regulated Utility. The regulated utility segment consists of Washington Gas and
Hampshire and represents approximately 85% of WGL Holdings' consolidated total
assets. Washington Gas, the core of the regulated utility segment, delivers
natural gas to retail customers in accordance with tariffs approved by the
regulatory commissions that have jurisdiction over Washington Gas' rates and
terms of service. These regulatory commissions set the rates in their respective
jurisdictions that Washington Gas can charge customers for its rate-regulated
services. Washington Gas also sells natural gas to customers who have not
elected to purchase natural gas from unregulated third party marketers.
Washington Gas recovers the cost of the natural gas purchased to serve firm
customers through gas cost recovery mechanisms as approved in jurisdictional
tariffs. Any difference between gas costs incurred on behalf of firm customers
and the gas costs recovered from those customers is deferred on the balance
sheet as an amount to be collected from or refunded to customers in future
periods. Therefore, increases or decreases in the cost of gas associated with
sales made to firm customers have no direct effect on Washington Gas' net
revenues and net income.

Washington Gas' pipeline asset optimization program utilizes Washington Gas'
storage and transportation capacity resources when those assets are not fully
utilized to serve utility customers. The objective of this program is to derive
a profit to be shared with its utility customers (refer to the section entitled
"Market Risk" for further discussion of our asset optimization program) by
entering into commodity-related physical and financial contracts with third
parties. Unless otherwise noted, therm deliveries shown related to Washington
Gas or the regulated utility segment do not include therm deliveries related to
our asset optimization program.

Hampshire operates and owns full and partial interests in underground natural
gas storage facilities, including pipeline delivery facilities located in and
around Hampshire County, West Virginia. Washington Gas purchases all of the
storage services of Hampshire and includes the cost of these services in the
bills sent to its customers. Hampshire operates under a "pass-through" cost of
service-based tariff approved by the FERC, and adjusts its billing rates to
Washington Gas on a periodic basis to account for changes in its investment in
utility plant and associated expenses.

Retail Energy-Marketing. The retail energy-marketing segment consists of the
operations of WGEServices. WGEServices competes with regulated utilities and
other unregulated third party marketers to sell natural gas and/or electricity
directly to residential, commercial and industrial customers in Delaware, the
District of Columbia, Maryland, Pennsylvania and Virginia. WGEServices contracts
for its supply needs and buys and resells natural gas and electricity with the
objective of earning a profit through competitively priced contracts with
end-users. These commodities are delivered to retail customers through the
distribution systems owned by regulated utilities such as Washington Gas or
other unaffiliated natural gas or electric utilities. Washington Gas delivers
the majority of natural gas sold by WGEServices, and unaffiliated electric
utilities deliver all of the electricity sold. Additionally, WGEServices bills
its customers through the billing services of the regulated utilities that
deliver its commodities as well as directly through its own billing
capabilities.

WGEServices also sells renewable energy credits from wind power and other
sources as well as carbon offset products to its customers. WGEServices does not
own or operate any other natural gas or electric generation, production,
transmission or distribution assets.

Commercial Energy Systems. The commercial energy systems segment consists of the
operations of WGESystems and WGSW. WGESystems provides commercial energy
efficiency and sustainability solutions to governmental and commercial clients.
These solutions include energy efficiency projects and distributed generation
assets such as Solar PV systems, combined heat and power plants and fuel cells
which we own and operate. WGESystems also focuses on upgrading the mechanical,
electrical, water and energy-related infrastructure of large governmental and
commercial facilities by implementing both traditional as well as alternative
energy technologies, primarily in the District of Columbia, Maryland and
Virginia. In addition to these three regions, WGESystems is also expanding its
portfolio of Solar PV power generating systems into California, Delaware,
Massachusetts, New Jersey and New Mexico. WGESystems is also evaluating
opportunities in other geographical locations within the United States.

WGSW is a holding company formed to invest in alternative energy assets. WGSW
holds a limited partnership in ASD Solar, LP in addition to investments in solar
assets through sale leaseback arrangements.

Wholesale Energy Solutions. The Wholesale Energy Solutions segment, which
consists of the operations of CEV, engages in acquiring, managing and optimizing
natural gas storage and transportation assets. CEV enters into both physical and
financial transactions in a manner intended to utilize the most effective energy
risk management products available to mitigate risks while maximizing potential
profits from the optimization of these assets under its management.

Other Activities. Activities and transactions that are not significant enough on
a stand-alone basis to warrant treatment as an operating segment, and that do
not fit into one of our other operating segments, are aggregated as "Other
activities" and included as part of non-utility operations as presented below in
the operating segment financial information. Administrative costs associated
with WGL Holdings and Washington Gas Resources comprise the majority of
transactions included in "Other activities."

• maintaining the safety and reliability of the natural gas distribution
system;

• competitive environment;

• environmental matters;

• industry consolidation;

• economic conditions and interest rates;

• inflation;

• use of business process outsourcing;

• labor contracts, including labor and benefit costs; and

• changes in accounting principles.

For further discussion of the factors listed above, refer to Management's
Discussion within the 2012 Annual Report. Also, refer to the section entitled
"Safe Harbor for Forward-Looking Statements" included in this quarterly report
for a listing of forward-looking statements related to factors affecting WGL
Holdings and Washington Gas.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in compliance
with GAAP requires the selection and the application of appropriate technical
accounting guidance to the relevant facts and circumstances of our operations,
as well as our use of estimates to compile the consolidated financial
statements. The application of these accounting policies involves judgment
regarding estimates and projected outcomes of future events, including the
likelihood of success of particular regulatory initiatives, the likelihood of
realizing estimates for legal and environmental contingencies and the
probability of recovering costs and investments in both the regulated utility
and non-utility business segments.

We have identified the following critical accounting policies that require our
judgment and estimation, where the resulting estimates may have a material
effect on the consolidated financial statements:

For a description of these critical accounting policies, refer to Management's
Discussion within the 2012 Annual Report. There were no new critical accounting
policies or changes to our critical accounting policies during the three month
period ended March 31, 2013.

Table of Contents

WGL Holdings, Inc.

Washington Gas Light Company

Part I-Financial Information

Item 2-Management's Discussion and Analysis of

Financial Condition and Results of Operations (continued)

WGL HOLDINGS, INC.

RESULTS OF OPERATIONS

We analyze the operating results using utility net revenues for the regulated
utility segment and gross margins for the retail energy-marketing segment. Both
utility net revenues and gross margins are calculated as revenues less the
associated cost of energy and applicable revenue taxes. We believe utility net
revenues is a better measure to analyze profitability than gross operating
revenues for our regulated utility segment because the cost of the natural gas
commodity and revenue taxes are generally included in the rates that Washington
Gas charges to customers as reflected in operating revenues. Accordingly,
changes in the cost of gas and revenue taxes associated with sales made to
customers generally have no direct effect on utility net revenues, operating
income or net income. We consider gross margins to be a better reflection of
profitability than gross revenues or gross energy costs for our retail
energy-marketing segment because gross margins are a direct measure of the
success of our core strategy for the sale of natural gas and electricity.

Neither utility net revenues nor gross margins should be considered as an
alternative to, or a more meaningful indicator of our operating performance,
than net income. Our measures of utility net revenues and retail
energy-marketing gross margins may not be comparable to similarly titled
measures of other companies. Refer to the sections entitled "Results of
Operations-Regulated Utility Operating Results" and "Results of
Operations-Retail Energy-Marketing" for the calculation of utility net revenues
and gross margins, respectively, as well as a reconciliation to operating income
and net income for both segments.

Summary Results

WGL Holdings reported net income of $89.5 million for the three months ended
March 31, 2013, compared to $74.2 million reported for the same period of the
prior fiscal year. We earned a return on average common equity of 11.8% and
7.6%, respectively.

The following table summarizes our net income (loss) by operating segment for
the three months ended March 31, 2013 and 2012.

The Regulated Utility segment's net income applicable to common stock was $77.1
million for the three months ended March 31, 2013, compared to net income of
$72.4 million reported for the same period of the prior fiscal year. The
comparison primarily reflects: (i) $5.6 million in lower income taxes due to a
decrease in the effective tax rate primarily driven by the write-off of
regulatory assets related to the tax effect of Medicare Part D in 2012;
(ii) $3.0 million in higher net revenues attributed to the warm weather impacts
of 2012 that were in excess of our weather protection program provisions;
(iii) $1.4 million of favorable effects of changes in natural gas consumption
patterns due to shifts in weather patterns and (iv) a $0.8 million increase in
revenues related to growth of more than 10,433 average active customer meters.
Partially offsetting these variances were: (i) $7.2 million decrease in
unrealized margins associated with our asset optimization program; (ii) an
increase of $1.1 million in depreciation expense due to the growth in our
investment in utility plant and (iii) a $1.0 million decrease in the recovery of
carrying costs on lower average storage gas inventory balances.

Utility Net Revenues. The following table provides the key factors contributing
to the changes in the utility net revenues of the Regulated Utility segment
between the three months ended March 31, 2013 and 2012.

Estimated weather effects - Weather, when measured by HDDs, was 1.7% colder and
23.6% warmer than normal for the three months ended March 31, 2013 and 2012,
respectively. Washington Gas has a weather protection strategy that is designed
to neutralize the estimated financial effects of variations from normal weather
on net income (refer to the section entitled "Weather Risk" for

Table of Contents

WGL Holdings, Inc.

Washington Gas Light Company

Part I-Financial Information

Item 2-Management's Discussion and Analysis of

Financial Condition and Results of Operations (continued)

further discussion of our weather protection strategy). Washington Gas executed
heating degree day derivative contracts to manage its exposure to variations
from normal weather in the District of Columbia. Changes in the fair value of
these derivatives are reflected in operation and maintenance expenses and offset
the benefits reflected above.

Natural gas consumption pattern - The variance in net revenues reflects the
changes in natural gas consumption patterns. These changes may be affected by
shifts in weather patterns in which customer heating usage may not correlate
highly with average historical levels of usage per heating degree days that
occur. Natural gas consumption patterns may also be affected by non-weather
related factors such as customer conservation.

Customer growth - Average active customer meters increased by more than 10,400
for the three months ended March 31, 2013 compared to the same period of the
prior fiscal year.

Gas administrative charge (GAC) -Represents a regulatory mechanism in all
jurisdictions that provides for recovery of uncollectible accounts expense
related to changes in gas costs. High/lower recoveries reflect GAC rate changes
in Maryland, Virginia and the District of Columbia. The related uncollectible
accounts expense is included in operation and maintenance expense.

Asset optimization -We recorded net unrealized losses associated with our
energy-related derivatives of $6.1 million for the three months ended March 31,
2013, compared to unrealized gains of $1.1 million reported for the same period
of the prior fiscal year. When these derivatives settle, any unrealized amounts
will ultimately reverse and Washington Gas will realize margins in combination
with related transactions that these derivatives economically hedge. Washington
Gas recorded no lower-of-cost or market adjustments related to its storage gas
inventory during the three months ended March 31, 2013. Washington Gas recorded
lower-of-cost or market adjustments related to its storage gas inventory, after
the effects of regulatory sharing, of $0.9 million during the three months ended
March 31, 2012. Refer to the section entitled "Market Risk-Price Risk Related to
the Regulated Utility Segment" for further discussion of our asset optimization
program.

Storage carrying costs - Each jurisdiction provides for the recovery of carrying
costs based on the pre-tax cost of capital in each jurisdiction, multiplied by
the monthly average balance of storage gas inventory. The three month comparison
reflects lower average storage gas inventory investment balances primarily due
to lower weighted average cost of gas in inventory.

Operation and Maintenance Expenses. The following table provides the key factors
contributing to the changes in operation and maintenance expenses of the
Regulated Utility for the three months ended March 31, 2013 and 2012.

Employee benefits - The increase in employee benefits expense reflects higher
pension expense, partially offset by lower other post-retirement benefits
primarily due to changes in the discount rate and other plan assumptions used to
measure the benefit obligation.

Weather derivative benefits - The effects of hedging variations from normal
weather in the District of Columbia for the three months ended March 31, 2013
and 2012 are recorded to operation and maintenance expense. The increase in O&M
for the weather derivative reflects the level of heating degree days this year
compared to the same period last year. This year, while HDD's were lower than
normal, they were greater than last year, resulting in provision being derived
from the weather derivative. During three months ended March 31, 2013,
Washington Gas recorded losses of $0.4 million (pre-tax) related to its
weather-related instruments as a result of colder-than-normal weather and
received a benefit of $0.7 million for premiums on its weather-related
instruments. During three months ended March 31, 2012, Washington Gas recorded a
gain of $4.2 million related to its weather-related instruments as a result of
warmer-than-normal weather and received a benefit of $0.3 million for premiums
on its weather-related instruments. The benefits or losses of the
weather-related instruments are offset by the effect of weather on utility net
revenues.